British and European firms are losing out on billions of pounds-worth of
government projects in China thanks to a tangled web of legal barriers,
back-door protectionism and widespread corruption, a report by the European
Chamber of Commerce in China has claimed.

The Coalition is hoping UK businesses can boost exports to China and kick-start a new growth path for BritainPhoto: AFP

China’s local and national government holds the keys to more than £700bn-worth of spending a year as the world’s second-largest economy continues a massive programme of infrastructure spending on everything from smart electricity grids to modernising hospitals.

The report, based on surveys with more than 50 leading European companies, found that foreign companies were disadvantaged over local companies at almost every step of the bidding process for government contracts.

The survey painted a dispiriting picture for the British small and medium-sized businesses that the Coalition government is hoping can boost exports to China and kick-start a new growth path for Britain.

Chief among the concerns was that Chinese companies very often received early warning of upcoming contracts, giving them an unfairly long time to prepare their bids.

“On Monday we learn about a bid due [to close] on Friday, but those on the ‘inside’ have known about it for weeks,” reported one of the European companies, “How can we compete?”

Another protectionist measure, often used by local governments and big state-owned companies, is to invent impossible standards for basic items that effectively exclude foreign companies.

In one example, a basic printer/copier for use in government offices was found to require no fewer than four certificates to become eligible for government procurement, as well as complying with another raft of specific office equipment standards.

“If your product is on the [government] catalogue list, that’s great, but if not you’ve basically been shut out and there’s no transparency about how these products got on the list,” added another company, “Sometimes it can seem like pure protectionism and it’s really frustrating.”

The report found that every member surveyed had encountered difficulties obtaining information and technical requirements for contracts, with the possible exception of foreign car companies whose luxury models make up most of Chinese government’s official car pools.

The EU Chamber also complained that theoretically impartial evaluation committees, set up to scrutinise bids for government contracts, were usually completely opaque, with members frequently having cosy links to both bidders and buyers.

“The process is too often obscure, information is not widely available, the awarding of bids is arbitrary and there is no real way of appealing the decision,” said Jacques De Boisseson, president of the EU Chamber.

Leveling the playing field for foreign businesses by increasing transparency would help China’s government meet its stated goal of improving the business environment and cutting corruption. “Our challenge is to convince the Chinese government that these are win-win proposals,” Mr De Boisseson added.

The cost and difficulty of tendering for potentially lucrative Chinese government projects was particularly disadvantageous from smaller European firms of the kind being promoted by last year’s UK trade mission, led by David Cameron.

“Big companies have the staff and resources to find out what is happening, but small companies don’t,” said Gilbert Van Kerckhove, chair of the working group behind the report, “Europe has a lot of small and medium-sized businesses, and these are the companies that suffer most from these problems.”

China has its own complaints about restrictive trade practices in Europe and the US, which it accuses of using spurious national security concerns to slow down hi-tech exports to China and block Chinese firms, such as the telecoms giant Huawei, from winning business abroad.

As the EU Chamber was giving its press conference in Beijing on Tuesday, a few miles across the city China’s ministry of commerce was warning in a rival event that Chinese companies were still facing myriad trade and investment barriers abroad.

In Europe there are growing calls for a more reciprocal approach to trade with China, whose companies are increasingly looking for export opportunities, and Mr De Boisseson said that Chinese companies coming to Europe faced a much fairer process than EU companies in China.

“I believe that the process in the EU is much more transparent than it is in China,” he said. “Of course, it’s not perfect and there are lots to improve, but at least there are strict rules; they are applied and they are appealable. There is due process.”